The fallout from the scandal that brought down PR firm Bell Pottinger is spreading after the resignations of the chief executive, chairman and a string of top executives from the South African arm of KPMG, which audits companies owned by the controversial Gupta family.
The resignations follow the publication of an investigation into the auditor’s work on businesses owned by the wealthy Guptas – who hired disgraced PR firm Bell Pottinger to run a secret campaign focused on “economic apartheid” and “white monopoly capital” – as well as for work for the South African Revenue Service.
The Guptas have been accused of benefiting financially from their close links to the South African president, Jacob Zuma, whose son Duduzane has been a director at several Gupta-owned companies. KPMG South Africa audited Gupta-owned firms for 15 years until March 2016, when it resigned the contract.
“While the investigation did not identify any evidence of illegal behaviour or corruption by KPMG partners or staff, this investigation did find work that fell considerably short of KPMG’s standards,” said KPMG International, which published a 10-page report on its investigation into the South African arm.
KPMG said it was donating the equivalent of 40m South African rand (£2.2m) – the total fees earned from Gupta company work from 2002 – to not-for-profit groups working in education and the anti-corruption sector.
The South African arm’s top management has all resigned –the chief executive, Trevor Hoole, the chairman, Ahmed Jaffer, and chief operating officer Steven Louw – as well as five partners.
KPMG said that it has decided to take disciplinary action seeking dismissal in relation to Jaques Wessels, the lead partner on the non-listed Gupta businesses.
The auditing firm enjoyed close ties with its Gupta clients well beyond office duties including four KPMG partners attending a lavish Gupta family wedding in 2013.
“While the investigation concluded that their attendance was not a breach of auditor independence rules, we accept that the partners should not have attended this wedding,” said KPMG International.
The audit of KPMG’s dealings with Gupta businesses found that teams “failed to apply sufficient professional scepticism and to comply fully with auditing standards”.
Further, it found that management of “many” Gupta companies responded “misleadingly and inadequately to audit teams’ enquiries”.
“Despite the deficiencies in the audit work, KPMG International found no evidence of dishonesty or unethical behaviour on the part of the audit partners and audit teams working on the audits for the Gupta group of companies,” the report says.
The report also cleared KPMG of allegations that it was involved in facilitating tax evasion for the Guptas.
Bell Pottinger’s 'economic emancipation' campaign used traditional and social media, including a fake blog and Twitter account, to target wealthy white South African individuals and corporations. The agency’s alleged role was to stir up anger about 'white monopoly capital' and 'economic apartheid' to draw attention away from the wealthy Gupta family, who have been accused of benefiting financially from their links to President Jacob Zuma. Bell Pottinger, which created and commissioned content, did not invent 'white monopoly capital' but used the term 'on occasion'. It also used other tactics, such as misleading or undermining journalists questioning the campaign.
It found that a “series of misrepresentations” from Gupta company clients over the period KPMG provided tax advice, but said its staff did not break the law.
“The investigation concluded there was nothing to indicate that in the delivery of these tax services, KPMG South Africa, its partners or staff, were involved in any activities of the Gupta family involving potential money laundering, tax evasion, corruption or any other illegal activity,” the report said.
“This has been a painful period and the firm has fallen short of the standards we set for ourselves, and that the public rightly expects from us,” said Nhlamu Dlomu, who has been promoted internally to succeed Hoole.
“I want to apologise to the public, our people and clients for the failings that have been identified by the investigation. It is important to emphasise that these events do not represent KPMG, our people or the values we have adhered to over decades of committed client service. My pledge and promise to the country is that we can and will regain the public’s confidence.”
Separately, it has emerged that Heather Kerzner, the fiancee of London-based Bell Pottinger’s ex-chief executive James Henderson, has hired lawyers to investigate how to get back some of her significant investment in the PR firm.
Kerzner owns a possible 15% stake in Bell Pottinger, making her one of its biggest shareholders after Henderson, who owned about 20% at the time of its collapse on Tuesday. The stakes are now effectively worthless with any money recovered by the administrators, BDO, going to banks and other creditors ahead of equity shareholders.
